ADB’s private lending hits $2.3B last year

Asian Development Bank (ADB) private sector operations over the past year reached $2.3 billion, growing the bank’s overall portfolio of private sector operations by 17 percent to $10.9 billion, according to ADB Private Sector Operations Department’s (PSOD) Development Effectiveness Report 2017.

The 27 new private sector operations committed in 2017 accounted for 13.4% of overall signed regular ordinary capital resources financing. Last year’s commitments were complemented by $5.9 billion in cofinancing, representing 50% of all cofinancing mobilized by ADB.

The report was released in Manila, Philippines at the 51st Annual Meeting of ADB’s Board of Governors.

“ADB is firmly committed to partnering with the private sector to help improve infrastructure, expand access to finance, and achieve the Paris Agreement on climate change and the Sustainable Development Goals,” said ADB Vice-President for Private Sector and Cofinancing Operations Mr. Diwakar Gupta.

“PSOD will continue to ambitiously work to expand its private sector operations from 13.4% to 20% of total commitments by 2020, including by working in new frontier markets and sectors and increasing support for high-level technologies to improve development impact.”

ADB private sector transactions committed in 2017 are expected to create 17,000 new jobs in Asia and the Pacific, while generating more than $492 million in government revenues and enabling the procurement of $2.2 billion of goods and services from local firms.

Private sector commitments last year are also projected to improve infrastructure access and services, helping treat 750 million cubic meters of wastewater every year and generating around 7,755 gigawatt hours of electricity—enough to power 870,000 households.

Private sector operations support for financial inclusion in 2017 will result in over 11.8 million individuals and small businesses in the region having better access to finance.

Among these, 90% are expected to be women or enterprises owned by women. Agribusiness projects committed last year will help more than 2,800 farming households, while over 400,000 farmers and rural households are expected to benefit from improved financial services.

Active private sector operations have already contributed to the region’s economy, providing employment for an additional 133,850 people and training 308,000 beneficiaries, mostly in financial literacy. ADB’s private sector clients have also achieved carbon emissions reductions of 4.1 million tons annually.

The figures in the report are based on ADB’s new performance measure of “commitments,” or the amount of loans, grants, and investments signed in a given year. This indicator was introduced in 2017 to promote project readiness at approval stage, expedite post-approval steps, and get closer to project disbursement, by placing more emphasis on when the projects are signed, rather than when they are approved by ADB’s Board of Directors.

Asia and the Pacific had also made important progress in expanding and deepening its financial systems, but must make further progress to improve financial inclusion using new financial technology (fintech), according to participants at a high-level Asian Development Bank (ADB) seminar during its 51st Annual Meeting in Manila, Philippines.

The seminar was co-hosted by ADB, the International Monetary Fund (IMF), and Bangko Sentral ng Pilipinas (BSP).

“Governments in the region can improve financial inclusion by broadening access to basic digital infrastructure and providing an enabling environment for innovators and entrepreneurs,” ADB President Mr. Takehiko Nakao said.

“Policymakers should also consider ways to improve regulations, including protecting consumers against cybercrimes and fraud, while striking the right balance between innovation and financial stability.”

Panelists at the seminar “New Technologies in Finance: Opportunities and Challenges for Asia” included IMF Deputy Managing Director Mr. Mitsuhiro Furusawa, BSP Governor Mr. Nestor Espenilla, Chair Professor at Korea National Diplomatic Academy Mr. Oh-Seok Hyun, and Director of Social Impact and Public Regulatory Affairs for the IOTA Foundation Ms. Julie Maupin.

Panelists discussed how fintech, including new innovations like distributed ledger technologies, virtual currencies, machine learning, and big data, can improve financial inclusion. The lack of access to financial services is widely viewed as a key challenge for Asia’s poor households and smaller firms. About two billion people in the world still do not have access to finance and half of them live in Asia and the Pacific.

“Fintech can help foster financial inclusion in Asia by its ability to reach rural areas, making financial services more affordable, and broadening access to small and medium-sized firms,” said Mr. Furusawa.

“Financial regulators will play a crucial role in creating an environment that promotes financial inclusion while mitigating the risks.”

Seminar participants also agreed that new technologies hold promise for bringing financial services to poorer communities and for overcoming the challenge of obtaining the collateral needed to access formal credit markets. International financial institutions such as the IMF and ADB can play a significant role in supporting countries as new technologies are introduced.

“There will always be a trade-off or a healthy tension between security and convenience as well as efficiency and financial integrity.

That is why the BSP has established a regulatory environment that allows innovations to flourish, at the same time ensures that risks are effectively managed,” said Mr. Espenilla.

“BSP’s regulatory approach is shaped by three core principles—ensure that regulation is risk-based, proportionate, and fair; maintain active multi-stakeholder collaboration; and ensure consumer protection.”

ADB supports many fintech initiatives in developing Asia. In 2017, ADB, Cantilan Bank, and Oradian, an IT company, launched a pilot cloud-based banking platform to enhance financial inclusion in Mindanao, Philippines.

This effort was made possible through support from BSP, which authorized this innovative approach to introduce new financial technologies in the banking sector.

To lead efforts to promote and further mainstream digital technology in ADB projects and programs, ADB established a new Digital Technology for Development Unit within the Sustainable Development and Climate Change Department in March 2018.